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Real Interest Rate and House Prices in Malaysia: An Empirical Stud

Author

Listed:
  • Tuck Cheong Tang

    (Department of Economics, Faculty of Economics and Administration, University of Malaya)

  • Pei Pei Tan

    (Department of Applied Statistics, Faculty of Economics and Administration, University of Malaya)

Abstract

This study examines the relationship between real interest rate and real house prices in Malaysia. The analysis covers recent quarterly data from 2001 to 2013. The regression results show a negative effect of real interest rate on the Kuala Lumpur house prices, but it is not the case for the remaining five reported states in Peninsular Malaysia. The Granger-causality tests also provide positive findings. The direction of causation is from real interest rate to real MHPI (the Malaysian House Price Indexes). This study supports the ripple effect – the states' house prices are inter-caused, except for Pulau Pinang. These findings are relevant for policy implications.

Suggested Citation

  • Tuck Cheong Tang & Pei Pei Tan, 2015. "Real Interest Rate and House Prices in Malaysia: An Empirical Stud," Economics Bulletin, AccessEcon, vol. 35(1), pages 270-275.
    • Handle: RePEc:ebl:ecbull:eb-14-00681
    as

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    References listed on IDEAS

    as
    1. Hooi Hooi Lean & Russell Smyth, 2013. "Regional House Prices and the Ripple Effect in Malaysia," Urban Studies, Urban Studies Journal Limited, vol. 50(5), pages 895-922, April.
    2. Kenneth N. Kuttner, 2013. "Low Interest Rates and Housing Bubbles: Still No Smoking Gun," World Scientific Book Chapters, in: Douglas D Evanoff & Cornelia Holthausen & George G Kaufman & Manfred Kremer (ed.), The Role of Central Banks in Financial Stability How Has It Changed?, chapter 8, pages 159-185, World Scientific Publishing Co. Pte. Ltd..
    3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    4. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    5. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2010. "Unit Roots and Structural Change: An Application to US House-Price Indices," Working papers 2010-04, University of Connecticut, Department of Economics, revised Dec 2010.
    6. Giorgio Canarella & Stephen Miller & Stephen Pollard, 2012. "Unit Roots and Structural Change," Urban Studies, Urban Studies Journal Limited, vol. 49(4), pages 757-776, March.
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    Cited by:

    1. Huseyin Karamelikli, 2016. "Linear and nonlinear dynamics of housing price in Turkey," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 46.
    2. Hamid Norfiqiri & Razali Muhammad Najib & Azmi Fatin Afiqah & Daud Siti Zaleha & Yunus Nurhidayah Md., 2022. "Prospecting Housing Bubbles in Malaysia," Real Estate Management and Valuation, Sciendo, vol. 30(4), pages 74-88, December.
    3. Awaworyi Churchill, Sefa & Baako, Kingsley Tetteh & Mintah, Kwabena & Zhang, Quanda, 2021. "Transport infrastructure and house prices in the long run," Transport Policy, Elsevier, vol. 112(C), pages 1-12.

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    More about this item

    Keywords

    Causality; Real house prices; Real interest rates; Malaysia;
    All these keywords.

    JEL classification:

    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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